Continuing to Make People Over Profits Decisions (Despite Recession)
People and Profits: The Pandemic Effect
In the height of the COVID-19 pandemic, when businesses were shut down and everyone was in quarantine, many businesses had to downsize staff. Businesses dependent on foot traffic (retail and restaurants) were shuttered. Businesses depending on people working in factories and warehouses ran skeleton crews or shut down production. The U.S. Federal Government gave out the Paycheck Protection Program (PPP) loans through the Small Business Administration, which was largely forgiven as free money to U.S. companies to incentivize businesses to retain staff and avoid layoffs. There were also Economic Injury Disaster Loans as COVID relief for businesses. I wrote a Medium article Making “People Over Profits” Decisions in November 2020 as a result of this economic state, when businesses were downsizing and laying off employees.
Many companies used that PPP loan fraudulently, looting this fund while still downsizing staff and keeping millions of dollars in their own pockets. Total impact has been billions of dollars ($579 billion estimated) of taxpayer money stolen. As of March 2022 , 178 people were convicted so far, with thousands more prosecutions to come (Dilanian & Strickler, 2022). Unemployment still reached record highs.
With stimulus payments to almost every American, the PPP loans, and increased unemployment compensation, the economy swelled. Artificially bloated by spending, the economy boomed for 2 years. Now that the pandemic has reached a level of control and business has largely returned to normal, the economy is in a recession death spiral. Without artificial infusions of cash, profits are down. The stock market has shown steady losses since January 2022 (S&P 500 6 Month Return, 2022). Businesses are now feeling the pain.
The True Hero Companies
Through this time, especially in the booming unemployment of 2020, the companies that stood out as true heroes were the companies that did not downsize or layoff employees. Sure, some companies like Amazon boomed during that time, making record sales, so they don’t rank as heroes. True Hero Companies were faced with losses from lower sales and obstacles from the pandemic, yet still retained their staff. They prioritized their employees’ well-being over their own level of profit. Restaurants, daycares, and service companies that continued to pay their staff despite having closed doors shines as the stars during that time. These were often local or regional businesses who cared for their staff and kept their jobs intact as long as possible despite losses.
This decision is against the norm for a business in a capitalist society. It is viewed as charity by some. Those companies who make a people-first decision like retaining employees through a time of losses are making an investment in their people and valuing their people as core to their business.
Recession and new “People Over Profits” Decisions
When a recession comes, a deal falls through, or a major contract is not renewed, most companies delete staff in order to maintain liquidity and profitability. For some, it is a survival decision: If they continue to pay employees, they will go out of business. For most, though, it is a matter of maintaining a certain level of return for their shareholders. Creating and maintaining shareholder value is really the chief purpose of any for-profit business.
As Milton Friedman, famous economist and capitalist reminded us: the purpose of any company, corporate leader, and employee is to make a profit. The only social responsibility of a business is to use its resources and capabilities to increase profits (Prevos, 2009). This mindset may not exist at the super-small local businesses which stood out as true heroes through the pandemic, that retained their employees despite their doors being closed and the losses that it would make. Those true heroes were human companies.
Those true hero companies that keep staff regardless of the economics are companies with a soul.
Corporations that are focused solely on profit and returning shareholder value, by their very nature, are soulless. Can they imitate humanity, though? Is there a path to redemption for a soulless corporation?
Seeing Staff as an Investment
Laying off staff in order to show pay a healthy dividend to shareholders illustrates that staff are the most expendable resource in the company. The employee doesn’t matter to those organizations. The costs of severance as well as the costs to acquire and train new staff later, to a corporation, are negligible in the face of the employee’s salary. Many companies look at their staff as $100,000/year price tags. If they want to create $25,000,000/year in profit, they need only to fire 250 employees. It is easy math for them.
Key to changing mindset at companies is seeing staff as an investment. Not only does an employee mean capacity to make money now, but institutional knowledge, skills, and relationships held by the employee are valuable in making more revenue and improving efficiency further down the road. In addition to reducing spend and effort on recruiting and training, retaining employees gives a company a cultural edge. The company is saying to the employees: You are our most important asset. Regardless of how we are doing, you are what defines us (you are our soul), so we won’t let you go. Creating a culture of valuing employees pays dividends in loyalty and productivity.
Remember how Peter Drucker said “Culture eats strategy for breakfast” and make decisions for your people first.
What About Survival?
Corporate survival is a thing. I’m not saying that companies should force themselves to go bankrupt. Every company needs to weigh in their current P&L, the weight of their expenses, their cash flow, and their cash reserves. The question every company needs to ask is: “Given our current burn rate and cash reserves, how long can we survive?” Yes, this means there is some accounting and business analysis that needs to happen.
When a company has cash reserves of $750 million but lays off 250 employees to save $25,000,000/year during a downturn, it makes me sick. Those cash reserves should exist for exactly this circumstance. Is there a profit this year? No. In fact, you reflected a loss of $25,000,000. Horrifying. All other factors being equal, that cash reserve could pay for those employees for 30 years. Would that decision result in more investment from shareholders? No.
Creating Fiercely Loyal Staff
Employees will walk through fire for you as a leader, tear down competitors, and build your empire bigger at great personal sacrifice when you have made People Over Profits decisions and put their welfare first. Choosing to keep your employees rather than laying off in order to maintain a healthy return shows them all that they are the most important thing to your organization. This is the soul that companies are missing right now. This Is the change that needs to happen to breathe fire into the workforce and the economy.
Art Ocain is Field CIO and CISO at. a managed service provider that serves IT architecture, operations, and cybersecurity needs across all verticals. Art has been in IT for over 20 years and has been a tech in the trenches as well as a manager in web hosting, internet service providers, enterprise IT, as well as services for the SMB market. You can read more on his LinkedIn profile: https://www.linkedin.com/in/artocain/
References:
Dilanian, K. and Strickler, L. (2022, March 28). ‘Biggest fraud in a generation’: The looting of the Covid relief plan known as PPP. NBC News. Retrieved from https://www.nbcnews.com/politics/justice-department/biggest-fraud-generation-looting-covid-relief-program-known-ppp-n1279664
Ocain, A. (2020, November 8). Making “People Over Profits” Decisions. Medium. Retrieved from https://artocain.medium.com/making-people-over-profits-decisions-61ebd10fab81
Prevos, Peter. (2009). Milton Friedman on Corporate Social Responsibility. Retrieved from https://lucidmanager.org/management/milton-friedman-corporate-social-responsibility/
S&P 500 6 Month Return. (2022, November). YCharts. Retrieved from https://ycharts.com/indicators/sp_500_6_month_return
